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The Consumer Finance Protection Bureau is a nonpartisan government agency that was created after the 2008 financial crisis to help protect us from evil banks, credit card companies, predatory lending practices, etc.

You may or may not really know or care about loan servicers, but they’re the middlemen who send you emails about making payments and take your money. Even when you take federal loan money, most people end up shuttled to one of the several private servicing companies who manage the payments. It should come as no surprise that handling that money is profitable and that unsavory companies stand to profit more if people send more money their way.

In short:

The Bureau alleges that Navient has failed to provide the most basic functions of adequate student loan servicing at every stage of repayment for both private and federal loans. Navient provided bad information in writing and over the phone, processed payments incorrectly, and failed to act when borrowers complained about problems. Critically, it systematically made it harder for borrowers to obtain the important right to pay according to what they can afford. These illegal practices made paying back student loans more difficult and costly for certain borrowers.

When people talk about trying to do clever (or even sometimes simple) things with payment timing or distributing loan payments, this is exactly why I would be hesitant to encourage them. It makes great sense to try to have extra payments go toward loans with the highest interest rate (and it’s still worth it). It makes sense to make extra payments in REPAYE while earning the interest subsidy to get the best of both worlds by getting free government money while also paying down your debt as aggressively as possible (and probably not worth trying, I’d argue). It makes sense to talk with your servicer to get information about your options and make sure everyone is on the same page.

The problem is that the servicers aren’t good at servicing your debt.

I’m concerned enough about the servicers doing the basics of applying IDR-based interest subsidies for borrowers in general, and they purposely make it difficult to confirm what’s happening on their end by poorly if ever demonstrating this information on loan statements, even while they promise “they’re there” when you call. I’m deeply suspicious of any plan that involves the servicers working in borrowers’ best interests.

I’ve spoken with multiple residents steered away from the REPAYE plan through misinformation into IBR or PAYE. I don’t know how much is malfeasance or just incompetence—the people on the phone are customer service reps, not experts—but it’s nonetheless one of the downsides of having a complex convoluted federal system that even the people charged with handling it are unclear as to how to implement its policies.

5 Comments

Former bond trader at vanguard turned student loan consultant here. What I like to say to explain navient’s failures is that they have 2 economic incentives. Serve borrowers for the lowest cost so they can win future govt bidding contracts as the govt prioritizes price and collect on defaulted student loans. So that makes them good at handling defaulted accounts, but physicians are almost never in that category. So they are exclusively dealing w a company whose primary goal is to serve them for a low cost.

So now you have the product of low costs, the rep. Theyre making $12 an hour and got training for 2 weeks in a job most of them are projected to quit in 6 mos. They just got off the phone w someone who didn’t finish college making $20,000 a year w $10,000 in student loans that they’re delinquent on. Then they switch gears and have to talk to a highly educated physician w $300,000 in debt and have to discuss PSLF , REPAYE , interest subsidies and the cost comparison of that option w prepping to refinance if you are thinking of going private practice? It’s no wonder that these companies fail to deliver good help especially for folks at the top end of the debt distribution. Companies respond to incentives that’s what economics teaches us

I lived in eastern Pennsylvania for several years. I recognize the accent when I call Navient. I assure you that malice is not the cause of the problems everyone is having with that company. No, it’s that special, goofy Pennsylvania coal-country blend of laziness and incompetence. I could only take so much of it before I had to move back to New York.